Taxpayers could face tax hikes to fund electric vehicle push

As South Africa advances towards embracing electric vehicle (EV) manufacturing, experts have warned taxpayers to brace themselves for potential tax hikes to offset government incentives.

Trade and Industry Minister Ebrahim Patel noted during the Black Industrialists and Exporters Conference that South Africa expects efforts to boost its EV manufacturing to yield swift results as manufacturers start to take advantage of tax incentives from early 2026.

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This follows Finance Minister Enoch Godongwana’s plans to support the transition to EVs through strategic investments, which he announced during his Budget 2024 speech. This move was warmly welcomed by National Association of Automobile Manufacturers ofSA (Naamsa) CEO Mikel Mabasa.

“A notable component of the minister’s announcement is the introduction of an investment allowance for new EV investments, set to commence in March 2026,” he explained.

“The allowance enables businesses and investors involved in EV production to claim 150% of their qualifying investment spending in the first year.

“This financial incentive is a crucial step in attracting investments, fostering innovation, and driving the growth of the EV sector within South Africa.”

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While these incentives were expected to stimulate investment in the EV sector, concerns loomed from various experts over the financial burden shifting onto citizens and the country’s readiness.

Economist and tax analyst Prof Jannie Rossouw said while tax breaks may ease financial strains for manufacturers, taxpayers will inevitably bear the cost through increased taxes.

Rossouw emphasised the government’s financial constraints, questioning the sustainability of subsidies without clear funding sources.

“Incentives like tax breaks can alleviate some financial burdens for manufacturers, but there’s a possibility that taxpayers will ultimately shoulder the cost through increased taxes elsewhere to compensate,” he said.

“Despite the fact that its essential for policymakers to transparently communicate the expected costs and benefits of such initiatives to ensure accountability and to minimise any undue burden on taxpayers.”

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“They will not do that and that’s why the pressure now lies with the taxpayer – because government has no money to do that.”

Political analyst Ralph Mathekga emphasised the disconnect between promises of EV incentives and the country’s ongoing electricity crisis. He said South African citizens were already stretched with tax and the increasing cost of living, including having to deal with poor electricity supply, which also adds to the cost.

“This does not give government much space to move in terms of squeezing more tax from stretched taxpayers,” said Mathekga.

He said the electricity shortage was holding back production in manufacturing in the country and has become “single major impediment” to growth.

“It does inspire confidence that the minister whose government is battling with stabilising electricity is making future promises that depends on the very electricity to be implemented and realised,” Mathekga added.

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“It does not add up. The electric vehicles plan must be synchronised with the reality of the electricity crisis.”

Meanwhile, Naamsa also stressed the importance of continuous dialogue with the government to tackle the hurdles linked to the implementation of the Automotive Production and Development Programme (APDP).

Concerns were raised regarding the adoption of an APDP rate tailored for scenarios of minimal local content and efficient tactics to encourage the uptake of domestically manufactured EVs.

In a statement, Mabasa noted that additionally, while the earmarked R964 million represents a noteworthy initial effort, it was crucial to acknowledge the magnitude of investments demanded by the sector, typically averaging around R5 billion annually.

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Expectations include additional partnerships and investments in the forthcoming years to maintain the current momentum.